SAUDI BASIC INDUSTRIES CORPORATION (SABIC) AND ITS SUBSIDIARIES

Transcription

1 SAUDI BASIC INDUSTRIES CORPORATION (SABIC) AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Index Pages Independent auditor s review report - Interim condensed consolidated statement of financial position 3 Interim condensed consolidated statement of income 4 Interim condensed consolidated statement of comprehensive income 5 Interim condensed consolidated statement of changes in equity 6 Interim condensed consolidated statement of cash flows 7 Notes to the interim condensed consolidated financial statements 8 17

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9 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate information Saudi Basic Industries Corporation ( SABIC or the Parent ) is a Saudi Joint Stock Company established pursuant to Royal Decree Number M/66 dated 13 Ramadan 1396H (corresponding to 6 September 1976) registered in Riyadh under commercial registration No dated 14 Muharram 1397H (corresponding to 4 January 1977). SABIC is 70% owned by the Government of the Kingdom of Saudi Arabia ( KSA ) and 30% by the private sector. The registered office is located at Qurtubah district, P.O. Box 5101, Riyadh 11422, KSA. SABIC and its subsidiaries (collectively the Group ) are engaged in the manufacturing, marketing and distribution of chemicals, polymers, plastics, agri-nutrients and metal products in global markets. The interim condensed consolidated financial statements of the Group for the period ended 31 March 2018 were authorised for issue in accordance with a resolution of the Board of Directors on 28 April Basis of preparation These interim condensed consolidated financial statements for the three months period ended 31 March 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting ( IAS 34 ) as endorsed in the KSA and other standards and pronouncements that are issued by the Saudi Organization for Certified Public Accountants ( SOCPA ). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should therefore be read in conjunction with the Group s annual consolidated financial statements for the year ended 31 December Summary of significant accounting polices The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual consolidated financial statements for the year ended 31 December 2017, except for the adoption of new standards effective as of 1 January The Group has not early adopted any new standard, interpretation or amendment that has been issued but which are not yet effective. The Group has adopted IFRS 9 Financial Instruments ( IFRS 9 ) and IFRS 15 Revenue from Contracts with Customers ( IFRS 15 ) on their effective date 1 January IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement ( IAS 39 ) bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. IFRS 15 replaces IAS 18 Revenue ( IAS 18 ) which covers revenue arising from the sale of goods and the rendering of services. The accounting policies affected by these new standards are disclosed below. 3.1 Financial instruments Classification of financial assets depends on the Group s business model for managing its financial assets and the contractual terms of the cash flows. The Group classifies its financial assets as: financial assets measured at amortised cost, or financial assets measured at fair value. Gains or losses of assets measured at fair value will be recognised either through the consolidated statement of income or through the consolidated statement of other comprehensive income ( OCI ). 8

10 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Summary of significant accounting polices (continued) 3.1 Financial instruments (continued) Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interests, are measured at amortised cost. Initial measurement Financial assets are initially measured at its fair value, plus transaction costs in the case of a financial asset not at fair value through income statement. Transaction costs of financial assets carried at fair value through income statement are recognised in the consolidated statement of income. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows meet the requirements as solely payment of principal and interest. Subsequent measurement Debt instruments The Group recognises three classifications to subsequently measure its debt instruments: Amortised cost Financial assets held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest (SPPI) are measured at amortised cost. A gain or loss on a debt investment subsequently measured at amortised cost and not part of a hedging relationship is recognised in the consolidated statement of income when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method. Fair Value through Other Comprehensive Income ( FVOCI ) Financial assets held for collection of contractual cash flows and for selling the financial assets, where the assets cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses, which are recognised in the consolidated statement of income. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI, is reclassified from equity to the consolidated statement of income and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other income/expense. Fair Value through Income Statement ( FVIS ) Financial assets that do not meet the criteria for subsequent recognition at amortised cost or FVOCI, are measured at fair value through income statement. A gain or loss on a debt investment that is subsequently measured at fair value through the income statement and which is not part of a hedging relationship is recognised and presented net in the consolidated statement of income in the period in which it arises. Equity instruments The Group measures all equity investments at fair value and presents changes in fair value of equity investments in OCI. Dividends from such investments continue to be recognised in consolidated statement of income as other income when the Group s right to receive payments is established. There shall be no subsequent reclassification of changes in fair value through the consolidated statement of income. 9

11 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Summary of significant accounting polices (continued) 3.1 Financial instruments (continued) De-recognition A financial asset or a part of a financial asset is de-recognised when: The rights to receive cash flows from the asset have expired, or The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either: a) The Group has transferred substantially all the risks and rewards of the asset, or b) The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Impairment The Group assesses on a forward looking basis the Expected Credit Losses ( ECL ) associated with its debt instruments as part of its financial assets, carried at amortised cost and FVOCI, the ECL is based on a 12-month ECL and life time ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. For accounts receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised from initial recognition of the receivables. 3.2 Revenue recognition Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. This is based on the principle that revenue is recognised when control of a good or service transfers to a customer. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. Revenue arrangements are assessed against specific criteria to determine whether the Group is acting as a principal or agent. Specific recognition criteria described below must be met before revenue is recognised. Where there are no specific criteria, above policy will apply and revenue is recorded as earned and accrued. Sales revenue The Group recognises revenue when control of the products sold, transfers to the customer, which shall be considered in the context of five-step approach and applying the applicable shipping terms. Rights of return When a contract with a customer provides a right of return of the good within a specified period, the Group accounts for the right of return when requested by the customer and contractual conditions are met. Allocation of performance obligations In certain instances, the Group determines delivery services as separately identifiable and distinct from the sale of goods. These are when the Group transfers control of goods at the Group s loading site and provides delivery services to the buyer s site. The Group allocates a portion of the total transaction price to delivery services based on best estimate of a similar stand-alone service. 10

12 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Summary of significant accounting polices (continued) 3.2 Revenue recognition (continued) Sales revenue (continued) Variable pricing preliminary pricing Certain products in certain markets may be sold with variable pricing arrangements. Such arrangements determine that a preliminary price is charged to the customer at the time of transfer of control of the products while the final price for the products can only be determined by reference to a time period ending after that time. In such cases, and irrespective of the formula used for determining preliminary and final prices, revenue is recorded at the time of transfer of control of the products at an amount representing the expected final amount of consideration that the Group receives. Where the Group records an accounts receivable for the preliminary price, subsequent changes in the estimated final price shall not be recorded as revenue until such point in time at which the actual final price is determined (as long as these changes result from changes in the market price/market price index of the products). They may however be considered in subsequent re-measurement as a financial asset at fair value. Such re-measurement may be recorded as a separate revenue. All other updates to the preliminary price is recorded against revenue with the additional receivable amount recorded under a contract asset or contract liability. Such contract asset or liability is derecognised against an accounts receivable at the point in time at which the actual final price is determined. Variable pricing volume rebates The Group provides retrospective volume rebates to its customers on products purchased by the customer once the quantity of products purchased during the period exceeds a threshold specified in the contract. The Group estimates the expected volume rebates using a prudent assessment of the expected amount of rebates, reviewed on a regular basis and updated, if deemed necessary. These amounts will subsequently be repaid in cash to the customer or are offset against amounts payable by the customer; if allowed by the contract. Under IFRS 15, volume rebates give rise to variable consideration. The Group considers the most likely amount method to be the best estimate of this variable consideration. Rendering of services In certain instances, the Group provides logistic services for goods sold. This service is satisfied over the period of delivery. Consequently, the Group defers revenue allocated to the logistic services and recognise it over that period. 3.3 Significant accounting estimates, assumptions and judgements By adopting IFRS 9, the Group is required to make judgements about: The regional and business related risk profiles of the Group s customers to assess the expected credit losses on trades receivable. The basis to determine the fair value of its equity investments, in reference to similar kind of investments being sold in the market. The selection of the investments to determine the basis requires judgement by management to recognise equity investments at fair value through other comprehensive income. For fair value determination, these investments qualify as level 3 items. For IFRS 15, management is required to make judgement and estimation of revenue and timing of when the logistic revenue that has been provided to Group s customers. 11

13 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. Adoption of IFRS 9 and IFRS IFRS 9 - Financial Instruments The Group adopted the new standard and has not restated comparative information. The difference between the carrying amounts of the financial assets resulting from adopting IFRS 9, are recognised in retained earnings and reserves as at 1 January Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9. The financial liabilities are not affected. The following assessments have been made based on the facts and circumstances at the date of initial application: The determination of the business model within which a financial asset is held The designation and revocation of previous designated financial assets as measured at FVIS The designation of certain investments in equity instruments not held for trading as FVOCI The designation of debt instruments as financial assets at amortised cost The following table shows changes in measurement and classification of the different categories in accordance with IAS 39 and the new measurement and classification categories in accordance with IFRS 9 for the Group s financial assets as per 1 January 2018: Measurement under IAS 39 Measurement under IFRS 9 Carrying value under IAS 39 Carrying value under IFRS 9 Changes on adoption of IFRS 9 Financial assets: Held-tomaturity investments * Amortised cost FVIS 375, ,404 13,404 Held-tomaturity investments * Amortised cost Amortised cost 2,680,161 2,680,161 - Available-forsale financial assets * Cost FVOCI 696,243 1,085, ,300 Trade receivables Amortised cost Amortised cost ** 22,609,432 22,569,822 (39,610) Other receivables Amortised cost Amortised cost 2,001,134 2,011,288 10,154 * Held-to-maturity investments and available-for-sale financial assets have been classified as investments in debt instruments and investment in equity instruments respectively. (Note 5) ** Trade receivables includes certain receivables with provisional pricing that qualifies for FVIS. 12

14 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. Adoption of IFRS 9 and IFRS 15 (continued) 4.2 IFRS 15 - Revenue from Contracts with Customers The Group adopted IFRS 15 resulting in a change in the revenue recognition of contracts with customers. The Group opted for the modified retrospective approach for the adoption without change in comparative financial information presented and has deferred revenue allocated to the logistic services. 4.3 Comparative financial information The adoption of IFRS 9 and IFRS 15 has resulted in a change in the non-controlling interests, other reserves and retained earnings as follows: Non-controlling interests Other reserves Retained earnings Balance as at 31 December ,216,859 (2,249,663) 10,282,264 IFRS 9 adjustments - Re-measurement of investments at - 389,300 - FVOCI - Re-measurement of investments at FVIS ,404 - Recognition of provision based on ECL 1,539 - (30,995) - Recognition of related currency translation and deferred taxes - (275) 8,616 1, ,025 (8,975) IFRS 15 adjustment Deferral of revenue relating to logistic services - - (39,435) Total IFRS 9 & IFRS 15 adjustments 1, ,025 (48,410) Opening balance as at 1 January 2018 (restated) 46,218,398 (1,860,638) 10,233, Other non-current assets As at 31 March 2018 As at 31 December 2017 Held to maturity investments (Note 4) - 3,055,161 Available-for-sale investments (Note 4) - 696,243 Investments in equity instruments at FVOCI 1,104,436 - Investments in debt instruments at FVIS 388,404 - Investments in debt instruments at amortised cost 2,594,005 - Others 5,328,329 4,219,500 9,415,174 7,970,904 13

15 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Significant matters during the quarter 6.1 Acquisition of a stake in Clariant AG On 25 January 2018, SABIC, acquired approximately 83 million shares in Clariant AG, a global specialty chemicals company listed on the Swiss stock exchange. The closing of the transaction is subject to completing regulatory approvals. Consequently, the advance payment for this acquisition is recognised at cost, as part of prepayments and other current assets. 6.2 Strategic workforce optimization initiative As a result of a strategic workforce optimization initiative in the first quarter of 2018, the Group has recorded a nonrecurring restructuring expense of SR 1.38 billion which is mainly related to severance cost. This strategic initiative is expected to reduce the Group s cost base going forward. 6.3 Period funding The Group is engaged in several global strategic growth initiatives. As a result, the Group has entered into a bridge loan amounting to SR billion on 3 February 2018, with an interest rate of LIBOR plus 30 bps and maturing on 3 February Fair value measurement Derivative financial instruments, amounting to SR million (as at 31 December 2017: SR million) are valued at fair value and classified as Level 2 measurement. Due to the adoption of IFRS 9, the measurement of the available-for-sale financial assets under IAS 39, changed from cost to FVOCI (Note 4 & Note 5). Since the valuation performed using a significant non-observable input, the fair value is classified as a level 3 measurement. Description of valuation techniques used and key inputs to valuation investments in equity instruments is as follows: Valuation technique Significant unobservable input Range Market approach Equity value to EBITDA multiple Net Asset Value approach Midpoint of Net Asset Value and Price to Book multiple Point estimate of distributable cash and cash equivalents and net assets Expected Returns approach Equity value to Revenue multiple to USD 12.3 to USD 13.3 At 31 March 2018, the fair values of Group s other financial assets and financial liabilities approximate the carrying value. 14

16 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 6.5 Related party transactions and balances The significant transactions and balances are tabulated as follows: Sales to related parties Purchases from related parties Amounts owed by related parties Amounts owed to related parties Loans to related parties Loans from related parties For the period ended 31 March 2018 As at 31 March 2018 As at 31 March 2018 Associates 524 1,435, , , Joint ventures and partners 3,098, ,697 3,114,668 90, ,576 2,501,870 For the period ended 31 March 2017 As at 31 December 2017 As at 31 December 2017 Associates - 1,279, , , Joint ventures and partners 3,963, ,924 2,976,637 40, ,850 2,491,245 7 Segment information For management purpose, the Group is organised into four Strategic Business Units (SBUs), based on its products, grouped in three reporting segments. The performance of the segment is evaluated based on net income and is measured consistently. Intersegment revenue may generally be recorded either at values that approximate third-party selling prices or at prices mutually agreed by management of the segments. Transfer prices between operating segments are on an arm s length basis in a manner similar to transactions with third parties. The SBUs financial details are shown below: Petrochemicals/ Specialties For the three months period ended 31 March 2018 Agri- Nutrients Metals Corporate Eliminations/ adjustments Consolidated Sales 50,622,968 1,320,713 3,277,631 23,879,107 (37,238,823) 41,861,596 Depreciation and amortisation expenses (3,146,861) (190,090) (242,066) (76,670) - (3,655,687) (Finance cost) / income, net (1,064,172) (7,139) (30,067) 702, ,695 (268,248) Other income / (expenses), net 247,217 (9,176) (392) 216,703 (429,766) 24,586 Share of results of associates and joint ventures 262,540 19, ,683 (19,586) 366,223 Zakat and income tax (463,033) (11,400) (30,000) (414,715) (439,852) (1,359,000) Net income attributable to equity holders of the Parent 7,485, ,633 27,875 5,632,905 (7,912,824) 5,508,081 15

17 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 7 Segment information (continued) Petrochemicals/ Specialties For the three months period ended 31 March 2017 Agri- Nutrients Metals Corporate Eliminations/ adjustments Consolidated Sales 43,365,859 1,342,009 2,062,610 21,132,679 (31,582,362) 36,320,795 Depreciation and amortisation (2,932,188) (177,265) (255,781) (60,755) - (3,425,989) (Finance cost) / income, net (1,039,367) (9,069) (29,423) 963,541 (107,087) (221,405) Other income / (expenses), net 328, , ,693 (475,486) 237,345 Share of results of associates and joint ventures 365,829 27,247-14,774 (27,247) 380,603 Zakat and income tax (222,759) (7,905) (27,500) (537,227) (204,609) (1,000,000) Net income attributable to equity holders of the Parent 7,127, ,019 (34,654) 5,653,081 (8,021,687) 5,234,518 As at 31 March 2018 Petrochemicals/ Specialties Agri-Nutrients Metals Corporate Eliminations/ adjustments Consolidated Total assets 287,655,768 10,324,977 18,582, ,590,009 (198,708,822) 339,444,115 Investment in associates and joint ventures 8,325, ,329-6,563,381 (595,841) 14,889,435 Net additions (disposal) to non-current assets 4,242, ,940 57,507 (775,676) - 3,797,469 Total liabilities 173,893,059 3,044,075 5,299,203 51,505,662 (112,183,862) 121,558,137 Petrochemicals/ Specialties As at 31 December 2017 Agri- Nutrients Metals Corporate Eliminations/ adjustments Consolidated Total assets 262,321,789 12,968,454 19,338, ,337,241 (192,510,199) 322,455,422 Investment in associates and joint ventures 7,839, ,380-6,428,512 (563,528) 14,304,140 Net additions (disposal) to non-current assets 9,302, , ,188 (576,409) - 9,506,383 Total liabilities 161,565,734 2,305,018 6,155,208 51,789,552 (109,498,582) 112,316,930 16

18 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 7 Segment information (continued) Geographical distribution of sales For the three months period ended 31 March 2018 For the three months period ended 31 March 2017 KSA 6,554,904 16% 5,142,629 14% China 7,477,270 18% 6,276,710 17% Rest of Asia 9,054,461 22% 7,823,393 22% Europe 10,380,950 25% 8,998,836 25% Americas 3,494,143 8% 3,378,363 9% Others 4,899,868 11% 4,700,864 13% 41,861, % 36,320, % The revenue information above is based on the locations of the customers. Geographical distribution of property, plant and equipment As at 31 March 2018 As at 31 December 2017 KSA 141,561,549 85% 143,163,921 86% Europe 15,450,806 9% 15,086,965 9% Americas 7,555,647 5% 7,383,489 4% Asia 1,700,540 1% 1,718,893 1% Others 2,465-2, ,271, % 167,355, % 8 Subsequent events The Annual General Assembly ( AGA ), in its meeting held on 1 Shabaan 1439H (corresponding to 17 April 2018), approved cash dividends of SR 12.6 billion (SR 4.2 per share) which includes the interim cash dividends amounting to SR 6 billion (SR 2 per share) for the first half of The AGA also approved Board of Directors remuneration of SR 1.8 million that is charged to general and administrative expenses. The aforementioned appropriations will be reflected in the interim condensed consolidated financial statements for the period ending 30 June 2018, excluding interim dividend of SR 6 billion for the first half of 2017 which have already been accounted for. In the opinion of management, there have been no further significant subsequent events since the period ended 31 March 2018 that would have a material impact on the financial position of the Group as reflected in these interim condensed consolidated financial statements. 17